ACIT, Sangrur V. M/s S.S. Spintex Ltd., Samana

ITA 915/CHANDI/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7531 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT KUMAR
• Assessee Lawyers: MANJEET SINGH
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, B CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 915/CHD/2017 ASSESSMENT YEAR: 2010-11 ASSTT. COMMISSIONER OF INCOME VS. M/S S.S. SPINTE X LTD TAX, CIRCLE, VILLAGE FATEPUR SANGRUR SAMANA PAN NO. AAHCS7196M (APPELLANT) (RESPONDENT) RESPONDENT BY : SH. MANJEET SINGH, ADDL. CIT APPELLANT BY : SH. LALIT KUMAR DATE OF HEARING : 19.06.2018 DATE OF PRONOUNCEMENT : 09.07.2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE CAPTIONED APPEAL HAS BEEN PREFERRED BY THE REVE NUE AGAINST THE ORDER DATED 06.03.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEAL), PATIALA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE REVENUE IN THIS APPEAL HAS TAKEN THE FOLLOWI NG GROUNDS:- 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), PATIALA HAS ERRED IN DELETING THE ADDITION OF RS. 29,44,917/- MADE ON ACCOUNT OF GP AFTER REJECTING THE BOOKS OF ACCOUNTS BY APPLYING THE RATE OF 8.5% INSTEAD OF 7.90% AS SHOWN BY THE ASSESSEE. ITA NO. 915/CHD/2017- M/S S.S. SPINTEX LTD., FATEPUR 2 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), PATIALA HAS ERRED IN DELETING THE ADDITION OF RS. 11,64,870/- MADE ON ACCOUNT OF WORKING CAPITAL FOR UNACCOUNTED PRODUCTION OF 2,52,655 KG. OF COTTON YARN. 3 IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4 THEM APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND FINALLY DISPOSED OF. 3. THE REVENUE IN THIS APPEAL IS AGGRIEVED BY THE A CTION OF THE CIT(A) IN DELETING THE ADDITIONS MADE BY THE AS SESSING OFFICER ON ESTIMATED GP RATE AFTER REJECTING THE BO OKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSING OFFICER HAD ALSO MADE ADDITIONS ON ACCOUNT OF ESTIMATED UNACCOUNTED PRODU CTION AND ALSO ON ACCOUNT OF ESTIMATED UNACCOUNTED WORKING CA PITAL CONSUMED IN RELATION TO THE UNACCOUNTED PRODUCTION. 4. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE IMPUGNED ORDER OF THE CIT(A) AND H AS SUBMITTED THAT EACH AND EVERY ISSUE HAS BEEN THOROU GHLY AND PROPERLY DEALT WITH AND DISCUSSED BY THE CIT(A) IN HIS IMPUGNED ORDER TO ARRIVE AT A CONCLUSION THAT THE A FORESAID ADDITIONS MADE BY THE ASSESSING OFFICER WERE NOT SU STAINABLE. HE, HAS SUBMITTED THAT THE ASSESSING OFFICER IN THI S CASE HAD REJECTED THE BOOKS OF ACCOUNT POINTING OUT THE DISC REPANCIES SUCH AS NON-MAINTENANCE OF STOCK REGISTER, NON-MAIN TENANCE OF DAY TO DAY RECORD OF CONSUMPTION OF CONSUMABLE STOR ES, NON- MAINTENANCE OF RECORD OF CONSUMPTION OF PACKING MAT ERIAL, INCONSISTENCY IN THE CONSUMPTION OF ELECTRICITY UNI TS VIS-A-VIS ITA NO. 915/CHD/2017- M/S S.S. SPINTEX LTD., FATEPUR 3 PRODUCTION OF THE FINISHED GOODS, VARIATION IN THE SALE RATES OF FINISHED GOODS AND COTTON WASTAGE, VARIATION IN TH E YIELD FROM TIME TO TIME AND FAILURE OF THE ASSESSEE TO EXPLAIN REGARDING THE FALL IN THE GP RATE AS COMPARED TO EARLIER ASSE SSMENT YEARS. 5. THE LD. COUNSEL HAS FURTHER SUBMITTED THAT THE L D. CIT(A) HAS DISCUSSED THE ABOVE ISSUE IN THE IMPUGNED ORDER . THE LD. CIT(A) AFTER GOING THROUGH THE RECORD HAS OBSERVED THAT THE ASSESSEE COMPANY HAD BEEN MAINTAINING THE STOCK REG ISTER WHICH CONTAINED THE WEIGHT OF RAW MATERIALS PURCHAS ED, WEIGHT THEREOF ISSUED FOR PRODUCTION IN DIFFERENT TYPES OF COTTON YARNS , THE PRODUCTION DETAILS CONTAINING DIFFERENT COUNTS OF THREADS ACHIEVED DURING PERIOD OF 24 HOURS STARTING FROM 8 AM IN THE MORNING TO 8 AM OF THE NEXT MORNING. THE LD. CIT (A) HAS ALSO MADE OBSERVATION THAT THE SAID REGISTER ALSO CONTAI NED THE DETAILS OF GOODS SOLD ON DAY TO DAY BASIS. HE ALSO OBSERVED THAT THE REGISTER CONTAINED THE DETAILS OF INWARD AND OU TWARD OF THE MATERIALS ON DAY TO DAY BASIS IN RESPECT OF ALL THE ITEMS RECEIVED / CONSUMED AND DISPATCHED BY THE ASSESSEE. HE, THEREFORE, HELD THAT THE OBSERVATION OF THE ASSESSI NG OFFICER THAT THE ASSESSEE HAD NOT BEEN MAINTAINING STOCK RE GISTER WAS CONTRARY TO THE FACTS ON RECORD. REGARDING THE NON - MAINTENANCE OF THE RECORD OF THE CONSUMABLES, IT WA S SUBMITTED BEFORE THE LD. CIT(A) THAT THERE WERE NO CONSUMABLES EXCEPT SPARE PARTS WHICH WERE MEANT FO R REPAIR AND MAINTENANCE ONLY AND NOT FOR PRODUCTION. THEREF ORE, THE ASSESSEE WAS NOT SUPPOSED TO MAINTAIN THE REGISTER WITH REGARD TO THE CONSUMABLES. HOWEVER, THE COPIES OF INVOICES OF THE CONSUMABLES ON ACCOUNT OF REPAIR AND MAINTENANCE EX PENSES ITA NO. 915/CHD/2017- M/S S.S. SPINTEX LTD., FATEPUR 4 HAD BEEN FURNISHED TO THE ASSESSING OFFICER WHICH W AS ALSO EXAMINED BY HIM. SO FAR AS THE NON-MAINTENANCES OF RECORD OF SOME OF THE PACKING MATERIAL WAS CONCERNED, IT WAS EXPLAINED TO THE CIT(A) THAT THE PACKING MATERIAL COMPRISED OF NUMBER OF ITEMS LIKE PAPER TUBES, POLYTHENE, JUTE ETC. AND TH AT THE PURCHASE OF THESE ITEMS WAS SUPPORTED BY PURCHASE I NVOICES HAD BEEN DULY RECORDED IN THE BOOKS OF ACCOUNT. THA T IT WAS NOT PRACTICALLY FEASIBLE TO MAINTAIN DAY TO DAY QUA NTITATIVE CONSUMPTION DETAILS OF THE VARIOUS ITEMS OF PACKING MATERIALS. EVEN MANY ITEMS LIKE PAPER CONES / TUBES BEING VERY FRAGILE GOT WASTED IN HANDLING. 6. THE LD. CIT(A) CONSIDERING THE ABOVE SUBMISSIONS NOTED THAT THE ASSESSING OFFICER HAD NOT POINTED OUT ANY SPECIFIC DISCREPANCY IN THE PURCHASE OF PACKING MATERIAL AND SALE OF FURNISHED GOODS. HE FURTHER OBSERVED THAT COMPLETE PRODUCTION RECORDS WERE ALSO MAINTAINED BY THE ASSESSEE. 7. REGARDING VARIATION IN SALE RATE, COTTON YARN AN D COTTON WASTE, IT WAS EXPLAINED BEFORE THE CIT(A) THAT THE SALE RATE OF COTTON YARN VARY DAILY AND WAS MARKET-DRIVEN. IT WA S ALSO EXPLAINED THAT THE COTTON WASTE AS OBTAINED AT DIFF ERENT POINTS OF MANUFACTURING PROCESS, IT HAD DIFFERENT QUALITY AND THAT THE PRICE OF THE WASTE WAS DEPENDABLE ON THE QUANTITY A ND QUALITY OF THE WASTAGE. SO FAR AS THE DECLINING IN YIELD AS COMPARED TO EARLIER YEARS WAS CONCERNED, IT WAS EXPLAINED THAT THE SAME HAD BEEN RECORDED ON ACTUAL BASIS, WHICH WAS DEPEND ENT ON THE QUALITY OF THE RAW MATERIAL, PROPORTION OF THE DIFFERENT TYPES OF RAW COTTON USED AND FURTHER IT WAS EXPLAIN ED THAT AS THE MACHINE GET OLDER, THE QUALITY AND QUANTITY OF THE COTTON ITA NO. 915/CHD/2017- M/S S.S. SPINTEX LTD., FATEPUR 5 YARN PRODUCED IN THE UNITS GO ON DECLINING YEAR AFT ER YEAR. THE FURTHER FACTORS FOR LOW GP RATE WAS ALSO EXPLAINED THAT THE MACHINERY INSTALLED IN THE ASSESSEE FACTORY WAS OLD MACHINERY, WHEREAS, THE OTHER UNITS IN THE LINE OF BUSINESS HA D INSTALLED HIGH-TECH MANUFACTURING MACHINERY WHICH PRODUCES HI GH QUALITY OF YARN AND FETCHES MORE PRICE AS COMPARED TO THE QUALITY OF YARD PRODUCED BY THE ASSESSEE. IT WAS AL SO EXPLAINED THAT THE GP RATE WAS ACTUAL AND WAS AS PER THE AUDI TED BOOKS OF ACCOUNT. SO FAR AS THE VARIATION IN THE POWER CO NSUMPTION VIS--VIS PRODUCTION OF FINISHED GOODS WAS CONCERNE D, IT WAS EXPLAINED THAT THE POWER CONSUMPTION ON A DAY WOULD NOT MANDATORY RESULT INTO PRODUCTION OF FURNISHED GOODS . THE ELECTRICITY MAY BE CONSUMED FOR SO MANY OTHER PURPO SES, BESIDES IT WAS NOT NECESSARY THAT THE FINISHED GOOD S WOULD COME INTO EXISTENCE ON THE SAME DATE. THAT THERE WA S SO MANY ELECTRIC CUTS DURING THE YEAR WHICH CREATED VARIATI ON IN CONSUMPTION OF THE ELECTRICITY. THAT THE ESTIMATION OF THE PRODUCTION ON THE BASIS OF ELECTRICITY CONSUMPTION, BY THE ASSESSING OFFICER, WAS NOT PROPER AND JUSTIFIED. I T WAS ALSO EXPLAINED BEFORE THE CIT(A) THAT THE ALLEGATION OF THE ASSESSING OFFICER THAT THERE WAS UNACCOUNTED PRODUC TION OF COTTON YARN AND COTTON WASTE WAS NOT BASED ON ANY E VIDENCE. THE ABOVE ALLEGATIONS WERE BASED ON ASSUMPTION AND PRESUMPTION AND ON ACCOUNT OF INCONSISTENCY IN POWE R CONSUMPTION ON DAY TO DAY BASIS. HOWEVER, NO OTHER EVIDENCE WAS AVAILABLE WITH THE ASSESSING OFFICER TO FORM AN OPINION THAT THE ASSESSEE WAS INDULGED IN UNACCOUNTED PRODUCTION . NEITHER THERE WAS ANY EVIDENCE OF PURCHASE OF ANY UNACCOUNT ED RAW MATERIAL NOR THERE WAS ANY EVIDENCE OF SALE OF FINI SHED GOODS OR ITA NO. 915/CHD/2017- M/S S.S. SPINTEX LTD., FATEPUR 6 WASTE THEREOF. THE LD. CIT(A) CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE OBSERVED THAT THE ASSESSE E HAD EXPLAINED THE REASONS OF VARIATION IN ELECTRICITY C ONSUMPTION AND THAT THE ADDITION ON THIS ACCOUNT WAS PURELY ON ESTIMATION BASIS WAS NOT JUSTIFIED. HE ALSO GOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE ON OTHER ISSUES ALSO AS DISCUSSED ABOVE. HE ACCORDING DELETED THE ADDITIONS SO MADE B Y THE ASSESSING OFFICER. 8. WE HAVE GONE THROUGH THE DECISION OF THE LD. CIT (A). IN OUR VIEW, THE LD. CIT(A) HAS DISCUSSED EACH AND EVE RY ISSUE IN DETAIL AND FOUND THAT THE ACTION OF THE ASSESSING O FFICER IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ESTIMATION OF THE INCOME OF THE ASSESSEE ON ESTIMATED GP RATE AND FURTHER ASSUMING UNACCOUNTED PRODUCTION AND UNACCOUNTED WOR KING CAPITAL WOULD NOT BE JUSTIFIED. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS THEREFORE, UPHELD. IN THE RESULT, THE APPEAL OF THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.07.2018 SD/- SD/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 09.07.2018 GANESH KUMAR/RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR